By: Bernard Baruch
Source: American Industry in the War: A Report of the War Industries Board. Washington, D.C.: Goverment Printing Office, 1921, 61, 63–67, 69, 98–100. Reprinted in Shannon, David A., ed. Progressivism and Postwar Disillusionment: 1898–1928. New York: McGraw Hill, 1966.
About the Author: Bernard M. Baruch (1870–1965) was born in Camden, South Carolina. At age eleven, he and his family moved to New York City, where he attended college and took a job in a Wall Street brokerage firm. Baruch's sharp financial judgment quickly made him a wealthy man. Though Baruch never abandoned his ties to the corporate world, he occasionally operated in the public sphere, supporting Woodrow Wilson's presidential campaign and advising the administration in the preparedness drive during World War I (1914–1918). Baruch served as an economic adviser again during World War II and as the American representative to the United Nations Atomic Energy Commission.
There was little popular support in 1914 for American entrance into the war raging in Europe, and indeed, the nation officially adopted a neutral stance. Nevertheless, America's increasing trade with the British and strong objections to the German's submarine blockade—which led to the sinking of ocean liners and the loss of American lives—made neutrality difficult to uphold. Congress passed legislation in 1915 and 1916, enlarging the army and navy and raising revenue for increased national defense. But war preparedness required the mobilization of the nation's industries as well, so Congress also authorized the creation of an agency designed to coordinate the American economy for war-making purposes.
The nature and extent of government regulation over the American economy proved to be an especially contentious topic during the Progressive era. Up to this point, national administrative powers had been relatively weak. Now, the government wanted to regulate the economy in profound ways, and the drastic change was not readily accepted. Thus, the original powers of the War Industries Board (WIB) and its predecessor agencies were quite limited. But industrial chaos followed, and by the spring of 1918, the WIB was reorganized to better direct war-related industry through the management of resources, production, and distribution. Bernard Baruch chaired the board during America's involvement in the war. Drawing on his broad knowledge of the nation's manufacturing base, he used his commanding position in the business world to streamline industry.
The WIB included a number of different divisions responsible for, among other things, prioritizing the use of raw materials, regulating prices, and conservation. The Conservation Division was charged with eliminating waste in production and distribution and achieved marked success in rationalizing industry through standardization. This required the reduction of needless variety in industrial products, setting standards of size and quality, and developing more economical modes of packaging and shipping. For instance, the WIB encouraged the automobile industry to reduce the number of styles of tires from 287 to nine, saving rubber, labor, and transportation costs. And regulations requiring the use of paper bailing rather than pasteboard boxes saved thousands of car loads of freight space each year.
Baruch relied on trade associations to help gather information on the individual industries he supervised.These associations helped the WIB set standards in each sector, but they also legitimized a form of corporate self-governance. To some degree this was unavoidable: a national government with limited capacity to regulate business activity had to lean on the institutional strength of the private sector in order to quickly mobilize for war. Baruch's close connection to industry helped cement this cooperative relationship, allowing the WIB to implement its economic strategy even as it institutionalized corporate interests.
Looking back on the war years, Baruch thought that the experience of the WIB had lasting implications for the peacetime economy. The Conservation Division's work alerted the nation to the potential savings that could be gained by eliminating wasteful competition. It also suggested the possible gains that could be derived from the public promotion of corporate expansion and consolidation. Only a few years earlier, in the election of 1912 (also chronicled in this chapter), Wilson's antitrust position indicated a genuine aversion to big business. Now, one of his most eminent appointees was trumpeting the advantages of efficiency resulting from large-scale corporate enterprise. Baruch envisioned a new associationalist state, one in which large corporations and trade associations were trusted to govern themselves, albeit under a government watchdog. The industrial demands of the war years, and the attendant expansion of government powers necessary to direct the American economy, shaped a new era of industrial cooperation that would last until the economic crisis of the Great Depression.
Primary Source: American Industry in War: A Report of the War Industries Board [excerpt]
SYNOPSIS: In this report of the War Industries Board, Chairman Bernard Baruch explains how the WIB's Conservation Division achieved greater economic efficiency through the rationalization of industrial practices. Baruch explores the implications of the WIB's experience for peacetime, commenting on the relative virtues of competition, cooperation, and government oversight.
The work of the Priorities Division was intimately related to that of another very important and very energetic division of the Board—the Conservation Division. The President's letter of March 4, 1918, charged the War Industries Board with the duty of promoting "the conservation of resources and facilities by means of scientific, industrial, and commercial economies." But the work was at that time already well under way, and the establishment of the Conservation Division under the Board on May 8, 1918, represented only a transfer from the council, and a reorganization of the Commercial Economy Board, which had been created as early as March 24, 1917.…
The plan of conservation laid down by the division for the guidance of the commodity sections and of its own agents was to undertake studies of industries, particularly those in which there were shortages of materials, facilities, or labor, with a view to formulating sets of regulations to accomplish one or more of the following purposes:
- To secure all feasible reductions in the number of styles, varieties, sizes, colors, finishes, etc., of the several products of the industry in question. This would accomplish economies in manufacture by reducing the number of operations, and the amount of reserve stock, raw and finished, which had to be carried; it would speed up the turn-over, reduce the labor and expense of selling, and decrease the loss due to depreciation.
- To eliminate styles and varieties of articles which violated the principle of economy in the use of constituent materials; for example, garments requiring unusual yardage could be eliminated.
- To eliminate features of adornment which added nothing to the usefulness of articles.
- To reduce the production and sale of such articles as were of lesser importance for the comfort and satisfaction of the population.
- To foster the substitution of articles and materials which were plentiful for those which were scarce and difficult to produce.
- To discourage the use for unimportant purposes of articles which were needed for more important purposes.
- To standardize sizes, lengths, widths, thicknesses, weights, gauges, etc., in such a way as to preserve sufficient strength and durability, but to effect economies in materials and labor.
- To reduce the waste of materials in manufacturing processes generally.
- To secure economies in the use of samples for selling purposes.
- To secure economy in containers by eliminating the smaller and odd sizes.
- To secure economy in packing by increasing the number of units per package.
- To secure economy in shipping space and packing materials by baling instead of boxing wherever this was practicable.
The process of drawing up tentative schedules of regulations, based on the recommendations of the trade organizations themselves, and sending them out to all parties directly interested for criticism and comment, that they might be revised before being issued as binding regulations, was designed to safeguard so far as possible against unfairness and injustice to any industry or firm. By canvassing conditions in their industries, by furnishing technical information and advice, by their loyal readiness to cooperate with the Government in carrying out the plans, often for drastic changes in trade practices, the business men in industry made these conservation projects possible. When the need was explained, they were always found ready to take the necessary steps, often at heavy sacrifices. The thoughts of the men at the helms of their own industrial enterprises were linked with the thoughts of the men at the seat of government in the common purpose of winning the war.
But there was an additional sanction for these regulations which gave confidence to each business man that all his fellows in trade would observe like practices with himself, and this last means of enforcement would have been of increasing importance had the war lasted over a long period. Whenever a schedule of conservation was issued, each manufacturer and dealer was required to give a pledge that he would observe it and do all in his power to see it observed on the part of those with whom he dealt. Most American business men will observe a pledge when once given and they need not be vigilated.
But there was a further power to encourage the good will of those who were tempted to waver. By the summer of 1918, the priorities commissioner was in a position to exercise control not only over the distribution of iron and steel, copper, and numerous other elemental constituents of manufacture, but, through the cooperation of the Fuel and Railroad Administrations, he could also withhold, for the purpose of brining recalcitrants into line, supplies of coal, coke, and oil, or the use of freight cars for transportation. With this sanction at the foundation of its efforts, the Conservation Division developed in rapid succession during the summer and fall of 1918 a series of "agreements," issued in the form of schedules of regulations to nearly a hundred different groups of producers—regulations which were already showing their effect in reducing the industrial activities of the country to a more efficient basis—when the end of the war made such undertaking no longer necessary.
Curtailment plans were carried out not by agreement among the concerns of an industry but by agreement between the industry as a group, on the one hand, and the Government, on the other. Many new trade practices were inaugurated in the same way.… Reference, by way of illustration, to some of these will be of general interest.
The conservation schedules for makers of men's and youths' clothing limited the length of sack coats and the length and sweep of overcoats, reduced the size of samples, and restricted each manufacturer to not more than 10 models of suits per season, resulting in a saving of 12 to 15 per cent in yardage. The number of trunks carried by traveling salesmen of dry goods houses underwent an average reduction of 44 per cent. The schedule for the women's garment industry was calculated as capable of saving 20 to 25 per cent in yardage.
The standardization of colors together with certain restrictions in styles of sweaters and analogous knitted articles released 33 per cent of the wool ordinarily used in that industry. A schedule providing that hosiery, underwear, and other knit goods, with certain small exceptions, should be packed for shipment in paper covered bales instead of pasteboard boxes resulted in a large saving in shipping space, while at the same time it released pasteboard to be used as a substitute for tin plate in the manufacture of containers for articles for which tin plate had been forbidden. It was estimated that this schedule would have effected an annual saving of 17,312 carloads of freight space, 141,000,000 cartons, and nearly a half million wooden packing cases.…
The manufacturers of automobile tires agreed to a reduction from 287 styles and sizes of tires to 32, with a further reduction to 9 within two years. This had a tendency to release a large amount of rubber and capital tied up in stocks everywhere. A schedule was issued also to the rubber clothing and the rubber footwear industries, the former eliminating 272 styles and types and agreeing to bale their product instead of shipping it in cartons. Even bathing caps were restricted to one style and one color for each manufacturer.
Savings in the agricultural implement industry are among the most important effected. Implement manufacturers were able to simplify manufacturing operations and reduce their stocks of raw materials; manufacturers, dealers, and jobbers found it possible to do business with smaller stocks of finished products; the steel mills saved, because every variation in size or shape had required a different set of rolls, and so on. Schedules were issued to manufacturers of portable grain elevators, plows and tillage implements, grain drills and seeders, harvesters, mowers, hay rakes, ensilage machinery, springtooth harrows, farm wagons and trucks, land rollers and pulverizers, and cream separators. The number of sizes and types of steel plows was reduced from 312 to 76; planters and drills from 784 to 29; disk harrows from 589 to 38; buggy wheels from 232 to 4; spring-wagon wheels from 32 to 4; buggy axles from over 100 to 1; buggy springs from over 120 to 1; spring wagons from over 25 to 2; buggy shafts from 36 to 1; buggy bodies from over 20 to 1 style, two widths; spring-wagon bodies from 6 to 2.
By making his line of farm wagons conform to this schedule, one manufacturer reduced his variety of front and rear gears from 1,736 to 16. Yet the farmers were as well taken care of in the growing, harvesting, and marketing of their crops with this smaller variety of agricultural implements to draw upon as they had been with the wide variety previously manufactured. The habits and prejudices of localities and individual farmers had made it necessary for manufacturers to make many more sizes and types of equipment than were essential, for all of which parts had to be carried, and the number of finished implements in the hands of manufacturers, jobbers, and retailers were unnecessarily large because of this multiplicity.…
The experience of the Conservation Division has clearly demonstrated that there are many practices in American industry which cost the ultimate consumers in the aggregate enormous sums without enriching the producers. These are often due to competitive demands, real or assumed. Many salesmen, in order to please the whims of particular customers, will insist upon the manufacture of new styles or new shapes of articles, requiring increased expense to the manufacturers and increased expense to both wholesalers and retailers in carrying more lines of stock; these in turn causing increased expense in maintaining salesmen and providing them with samples as well as in advertising. The consumer, the general public, is no better served by the satisfaction of these unreasonable demands, but the public ultimately pays the bill. We may well draw from this war experience a lesson to be applied to peace, by providing some simple machinery for eliminating wasteful trade practices which increase prices without in the remotest degree contributing to the well-being of the people. There is enough natural wealth in this country, and there is enough labor and technical skill for converting that wealth into objects of human satisfaction to provide abundantly for the elemental comforts of every person in the land. The problem before our Nation today is to bring about such adjustments of the industrial processes as lead toward that long-sought condition of life.…
The experience of the Board in exercising control over American industry leads it to make a further suggestion, which has less to do with war than with the normal practices of business.
During the past few decades, while the American business man, uniting his talents with those of the technical expert, has, through the control of great masses of capital, made such extraordinary strides in converting the natural wealth of this country into means for human comfort and satisfaction; the processes of trade have so changed their nature that the older and simpler relations of Government to business have been gradually forced to give way before certain new principles of supervision. We have been gradually compelled to drift away from the old doctrine of Anglo-American law, that the sphere of Government should be limited to preventing breach of contract, fraud, physical injury and injury to property, and that the Government should exercise protection only over non-competent persons. The modern industrial processes have been rendering it increasingly necessary for the Government to reach out its arm to protect competent individuals against the discriminating practices of mass industrial power. We have already evolved a system of Government control of no mean significance over our railroads and over our merchant fleet, but we continue to argue, and in a measure believe, that the principles of competition can be preserved in sufficient power in respect to all other industries to protect the interests of the public and insure efficiency and wholesome growth in the development of natural wealth. With this in view, the Sherman and Clayton Acts have forbidden combinations in restraint of trade, monopolies, and many other vices attendant upon group action by individuals controlling great masses of capital. This legislation, while valuable for immediate purposes, represents little more than a moderately ambitious effort to reduce by Government interference the processes of business so as to make them conform to the simpler principles sufficient for the conditions of a bygone day.
The war has introduced a new element into this situation. The individual units of corporations which had been dissolved under the Sherman Act have, in many cases, grown during the war into corporations many fold larger than the parent organization which before the war the law construed as a menace. The conditions of war made this sort of thing necessary and in all respects desirable. The war gave rise to a kind of demand unknown in time of peace—an absolute demand, which was halted neither by prices nor difficulty of procurement. There followed an absolute shortage in some trades, and a time shortage in most of them. Group action, industry by industry, accompanied by Government control of prices and distribution, was the natural and, so far as we know, the only solution which could be devised.
In line with the principle of united action and cooperation, hundreds of trades were organized for the first time into national associations, each responsible in a real sense for its multitude of component companies, and they were organized on the suggestion and under the supervision of the Government. Practices looking to efficiency in production, price control, conservation, control in quantity of production, etc., were inaugurated everywhere. Many business men have experienced during the war, for the first time in their careers, the tremendous advantages, both to themselves and to the general public, of combination, of cooperation and common action, with their natural competitors. To drive them back through new legislation, or through the more rigid and rapid enforcement of present legislation, to the situation which immediately preceded the war will be very difficult in many cases, though in a few it is already occurring spontaneously. To leave these combinations without further supervision and attention by the Government than can be given by the Attorney General's Department, or by the Federal Trade Commission in its present form, will subject business men to such temptations as many of them will be unable to resist—temptations to conduct their businesses for private gain with little reference to general public welfare.
These associations, as they stand, are capable of carrying out purposes of greatest public benefit. They can increase the amount of wealth available for the comfort of the people by inaugurating rules designed to eliminate wasteful practices attendant upon multiplicity of styles and types of articles in the various trades; they can assist in cultivating the public taste for rational types of commodities; by exchange of trade information, extravagant methods of production and distribution can be avoided through them, and production will tend to be localized in places best suited economically for it. By acting as centers of information, furnishing lists of sources to purchasers and lists of purchasers to producers, supply and demand can be more economically balanced. From the point of vantage which competent men have at the central bureau of an association, not only can new demands be cultivated, but new sources of unexploited wealth can be indicated. In case of a national emergency, the existence of these associations at the beginning would be of incalculable aid to the supply organizations. Many of these considerations apply to large individual companies as well as to associations.
These combinations are capable also—and very easily capable—of carrying out purposes of greatest public disadvantage. They can so subtly influence production as to keep it always just short of current demand and thus keep prices ever high and going higher. They can encourage a common understanding on prices, and, without great difficulty, can hold price levels at abnormal positions. They can influence the favoring of one type of buyer over another. Nearly every business man in the country has learned by the war that a shortage in his product, if it be not too great, is distinctly to his advantage. Trade associations with real power can, in respect to most of the staples, so influence production as to keep the margin of shortage at a point most favorable to high prices and rapid turnovers.
The question, then, is what kind of Government organization can be devised to safeguard the public interest while these associations are preserved to carry on the good work of which they are capable. The country will quite properly demand the vigorous enforcement of all proper measures for the suppression of unfair competition and unreasonable restraint of trade. But this essentially negative policy of curbing vicious practices should, in the public interest, be supplemented by a positive program, and to this end the experience of the War Industries Board points to the desirability of investing some Government agency, perhaps the Department of Commerce or the Federal Trade Commission, with constructive as well as inquisitorial powers—an agency whose duty it should be to encourage, under strict Government supervision, such cooperation and coordination in industry as should tend to increase production, eliminate waste, conserve natural resources, improve the quality of products, promote efficiency in operation, and thus reduce costs to the ultimate consumer.
Such a plan should provide a way of approaching industry, or rather of inviting industry to approach the Government, in a friendly spirit, with a view to help and not to hinder. The purpose contemplated is not that the Government should undertake any such far-reaching control over industry as was practiced during the war emergency by the War Industries Board; but that the experiences of the war should be capitalized; its heritage of dangerous practices should be fully realized that they might be avoided; and its heritage of wholesome and useful practices should be accepted and studied with a view to adapting them to the problems of peace. It is recommended that such practices of cooperation and coordination in industry as have been found to be clearly of public benefit should be stimulated and encouraged by a Government agency, which at the same time would be clothed with the power and charged with the responsibility of standing watch against and preventing abuses.
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Schwarz, Jordan. The Speculator: Bernard M. Baruch in Washington, 1917–1965. Chapel Hill: University of North Carolina Press, 1981.